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LawBiz® TIPS – Week of October 16, 2012

LawBiz(r) newsletter

Last weekend, I drove to Monterey, CA for the Cal Bar state conference and education sessions. More than 2200 attended. Our Section, the Law Practice Management & Technology Section, had its own meeting within the Bar activities and demonstrated the high quality of folks who have entered the field of management and technology that is legal related. This is no longer a small contingent of advanced thinkers, but rather a growing core group in a maturing industry.

In the beginning, passage of the bar examination demonstrated proficiency and competency to be a lawyer. In the late 1900s, this was no longer sufficient and MCLE was adopted by most states. Now, a third layer is being imposed. The first (I believe) to impose a third layer/requirement is New York; the Bar there just adopted a 50 hours pre-admission requirement to qualify for the Bar. The intent is to provide both pro bono for the public and practical training for the lawyer. California is now studying a similar proposal and I expect that something will be enacted before the end of this year. Stay tuned. Entry barriers are rising as is the cost of one's "ticket" to practice.

If you will be in the following areas, I'd welcome having breakfast with you. Please contact me directly.

Lake Tahoe, CA - October 17-18, 2012
Washington, D.C. - October 25-27, 2012
San Francisco, CA - November 12-13, 2012

Ed signature

What If You Lost Your Biggest Client?

Large Clients as Security Blankets
In today's unsettled business environment, small and medium size law firms may look upon a few large clients as constituting a security blanket of assured revenue. However, that blanket could be yanked away at any time. For example, a partner could leave for another firm and take a large client's billings. Or the client could be experiencing financial difficulties that the firm does not know about, until the client files for bankruptcy. A large client could also suddenly be acquired in an unfriendly takeover by a company that already is satisfied with its own law firm.

No Single Client Should Exceed 10% of the Firm's Revenue
However it happens, the loss of a large client is such a major risk that you may want to consider one of the most important axioms of business: make sure no single client exceeds 10% of your total revenue. Thus, if any one client becomes unable to pay you or is no longer there to pay you, the loss won't be so hard to handle. I have seen too many firms focus on a very few, larger clients and be severely damaged when the fees from that client fail to continue - from dissatisfaction, change of billing attorney, merger, recession, or other unanticipated causes.

A Balance of Small and Large Clients
Some firms believe that having numerous small clients leads to greater revenue stability. However, studies suggest that small clients disproportionately drain the resources of law firms while providing a disproportionately small contribution to firm profits. I am all in favor of seeking larger clients with more money and more interesting challenges. This effort, however, must be balanced to assure that the firm doesn't wind up with only a few clients, large though they may be, who put the firm at risk if they should leave.

Create a Marketing Plan to Minimize Your Risk
You may be willing to accept this risk for the short-term with the intent of getting more clients so that the percentage allocation to the "larger" client is reduced while maintaining the billings at the same level for the client. The most effective way to do this is to develop a marketing plan that identifies and evaluates the kind and size of clients the firm wants and needs. The best way to create a marketing plan is by identifying the hypothetical client targets you wish to aim at, and the work those clients can or may give you to diversify from the larger client.

One final caveat: make no long-term capital or other expenditures at the behest of larger clients without some type of assurance that their business will stay with you until at least the amortization for the new expenditure is completed. Otherwise a long-term strategy bas ed exclusively on fewer, larger clients will almost always lead to disaster.

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In this issue:

What If You Lost Your Biggest Client?

$50 OFF! Running Your Practice

Video: Collecting Your Fee Begins At the Intake

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What Clients Are Saying:

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Ed Poll, LawBiz® Management   |   |   |
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